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I’ve always wondered who started the urban
myth that the best way to start a company is to come up with a
great idea, and then find some professional investors to give you
a pot of money to build a company. In my experience, that’s
actually the worst way to start, for reasons I will outline here,
and also the least common way, according to a recent survey of
new startups.

Based on the latest Startup Environment Index from
the Kauffman Foundation and LegalZoom, personal money, or
bootstrapping, continued to be the primary startup funding in
2012. Eighty percent of new entrepreneurs used this approach,
with only six percent using investor funding. The remaining
entrepreneurs borrowed from family and friends, or acquired a
loan.

So before you become obsessed with scoring investors to fund your
idea and minimize your risk, consider the following:

Finding investors takes work, time, and money you can
ill afford. Entrepreneurs who plan to complete a
business plan the first month, find an investor the second,
and roll out a product the third month are just kidding
themselves. Count on several months of effort and costly
assistance to court investors, with less than a 10% success
rate.

Anyone who gives you money is likely to be a tough
boss. If you chose the entrepreneur lifestyle to be
your own boss, don’t accept money from anyone. Every person
who gives you money will want to have “input,” if not formal
approval on every move. Be prepared to live with
communication, negotiation, and milestones every day.

Don’t give up a chunk of your company and control
before you start. Even a small investor in the early
days will take a large equity percentage, due to that pesky
valuation challenge. At least wait until later, when you
ready to scale, and have some “leverage” based on a proven
business model, some real customers, and real revenue.

You will squeeze harder on your own dollars than
investor dollars. It’s just human nature that we
remember the pain of earning our own dollars, versus those
“donated” by someone else. Focusing on the burn rate and
prioritizing every possible expense will keep overhead down,
help you stay lean, and achieve a higher profit earlier.

Sometimes survival requires staying under the
radar. People who give you money like to talk about
their great investment, and competitors see you coming.
Sometimes creative efforts need more time before launch, or
your efforts to run the company need tuning. Investors like
to replace Founders who don’t seem to be moving fast enough.

Managing investors is a distraction from your core
business. Fundraising and investor governance are
never-ending tasks, which will take real focus away from
building the right product and finding real customers. Having
more money to spend, but spending it on the wrong things,
certainly doesn’t pave the road to success.

Entrepreneurs need to start small and pivot
quickly. Start with a minimum viable product (MVP),
as well as a minimum viable team. Investors like a
well-rounded team, working in a highly parallel fashion. That
takes more money and time to set up, and more people to
re-train and re-educate when forced to redirect your
strategy.

The best partners are ones who share costs and
risks. With no investors, you will work harder to
find vendors who will absorb costs and associated risks for a
potentially bigger return later. Since they now have real
skin in the game, they will also work harder to show quality
and value, which is a win-win-win for you, them, and your
customers.

You will be happier and under less pressure.
You should choose to be an entrepreneur to be able to do what
you love. Yet we all apply pressure to ourselves to do these
things to our own satisfaction. Investor money brings so many
additional pressures, that personal happiness and
satisfaction can be completely jeopardized.

Show you are committed to your startup, not just
involved. When you put your own financing on the
line, your partners, your team, and eventually your customers
will know that you are committed to solving their problem.
That increases their motivation and conviction, which are the
keys to their success as well as yours.

Of course, some of you will say, I don’t have a dollar and my big
idea can’t wait. Unfortunately, outside investors are not an
answer to this problem. To investors, having no money indicates
that you may not have the discipline to manage their money, and
manage a tough business process as well.

In these cases, I would suggest you work in another similar
startup for a while, to learn the business, save your pennies,
and test your startup concept on the side. A startup idea
executed hastily and poorly will be killed more completely than
any timing delay. Are you sure the money you seek is really your
key to changing the world?